Analysis: Oil reports may offer Obama an out on Iran

President Barack Obama speaks to the press, while seated next to Georgia's President Mikheil Saakashvili (not pictured), at the Oval Office of the White House in Washington January 30, 2012.

Reuters/Larry Downing

WASHINGTON (Reuters) - President Barack Obama will soon get regular, albeit incomplete, reports on how oil markets are coping ahead of broader sanctions on Iran that could help him justify easing off sanctions to prevent a politically damaging jump in crude prices.

Under the latest Iranian sanctions signed into law late last year, the U.S. Energy Information Administration must begin issuing reports by Feb 29 and every two months after that on oil production and prices as the United States moves to squelch Iranian oil shipments.

The law imposes sanctions on financial institutions dealing with Iran's central bank. It's designed to rein in Iran's nuclear program by targeting its ability to sell oil, the country's lifeblood.

The administration has nervously moved ahead with sanctions as it negotiates with some of Iran's biggest customers to reduce their imports of its oil.

The irony is that while the sanctions were designed to hit Iran, global oil prices could rise due to rising tensions over the sanctions and that could trouble Obama.

FIG LEAF

The White House is bracing for a barrage of criticism if gasoline prices begin to rise with the onset of the summer driving season, according to one source close to the White House. If gasoline prices march towards $5 a gallon from more than $3.40 now, Republicans will attack just as Obama gears up for the November elections.

But Obama could use the EIA reports, which look at production and prices in countries besides Iran, to ease up on sanctions if they suggest energy security was at stake.

"If the president decides he doesn't want to impose the sanctions he's got a fig leaf," said Phil Verleger an economist and consultant with PKVerleger LLC. "He can hide behind the report."

Tensions between Iran and the West have been on the rise since the EU said this month it would embargo Iran's oil exports from July 1.

The International Monetary Fund has warned a supply disruption caused by the sanctions could push oil prices up by $20 to $30 a barrel, exacerbated by the thin oil stocks held by many consuming countries.

The Obama administration has time to decide if the EIA reports suggest prices will rise to an uncomfortable level. The EIA will issue three of the reports ahead of the June 28 deadline in the law that allows Washington to sanction foreign banks in countries such as China, India and South Korea that purchase petroleum from Iran.

INCOMPLETE DATA

Glen Sweetnam, who is in charge of the upcoming EIA report, said the agency has put a dozen workers on the reports, a bit more than for its usual reports on energy markets.

"What we are trying to do here is trying to provide an accurate picture as we can of the oil market and that's what we normally do," said Sweetnam.

Economists will be watching whether the February report gives insight on whether Saudi Arabia and the United Arab Emirates can make up for any shortfall if Iran shuts in production.

"One of the biggest parts of the debate is how much capacity does Saudi Arabia have to step in and make up for," losses in Iran's exports, said Michael Levi, a fellow at the Council on Foreign Relations.

But some doubt the EIA, riven by budget cuts, can give a complete picture of oil markets because of knowledge gaps especially in Asia, where demand has been growing the fastest.

"There are massive problems with the data," said Edward Morse, the global head of commodities research at Citigroup in New York. He believes the EIA could get a clearer snapshot if it get more money in the budget, but even then the picture would not be complete.

As the independent statistical arm of the Energy Department, the EIA is charged with compiling reports and forecasts free of influence from the administration.

The reports mandated by the sanctions law, however, will be done in collaboration with the Treasury and State Departments and the Director of National Intelligence. Those agencies will provide input before the reports are sent to Congress.

The collaboration could spark criticism that the administration influenced the study, a charge Sweetnam rejected because the EIA would be the final editor. "We decide what it's going to say," he said.

HARD TO HOLD FEET TO THE FIRE

Nevertheless, the EIA report could act as a political shield if Obama decided to temper the sanctions. Mark Dubowitz, a advocate for tougher Iran sanctions and head of the Foundation for Defense of Democracies, said it will be "difficult for Congress and for others to hold the administration's feet to the fire" if Obama used the EIA report as a reason to ease up.

George Lopez, an expert on international sanctions at University of Notre Dame, said Obama would have to tread carefully and not appear as being soft on Iran. But ultimately the president has much wiggle room.

"Previous presidents have dialed back on sanctions for reasons far less compelling to national security than high oil prices," he said.